TRADE
POLICY REVIEWS: FIRST PRESS RELEASE, SECRETARIAT
AND GOVERNMENT SUMMARIESThe
Philippines: September 1999

Policy
reforms pursued by the Philippines over an extended
period have resulted in a more open, competitive economy
which was able to withstand relatively unscathed the
Asian financial crisis. A new WTO report on the trade
policies of the Philippines concludes that this provides
a generally good example of the advantages of structural
reform in overcoming macroeconomic shocks. The report
also suggests that the Philippines could derive further
benefits, including for its consumers, from more outward
oriented, as opposed to an export-oriented trade and
investment regimes.

Continuing
liberalization helps the philippine economy become more
competitive and resilient Back
to top

Policy
reforms pursued by the Philippines over an extended
period have resulted in a more open, competitive economy
which was able to withstand relatively unscathed the
Asian financial crisis. A new WTO report on the trade
policies of the Philippines concludes that this provides
a generally good example of the advantages of structural
reform in overcoming macroeconomic shocks. The report
also suggests that the Philippines could derive further
benefits, including for its consumers, from more outward
oriented, as opposed to an export-oriented trade and
investment regimes.

The
new WTO Secretariat report, along with a policy statement
by the Philippine Government, will serve as a basis for
the Trade Policy Review of the Philippines which will be
conducted by the Trade Policy Review Body of the WTO on
27 and 29 September.

Electronics,
automotive products and garments together account for
more than 70% of Philippines' exports, the report says.
Between 1993 and 1997, the share of manufactured products
in Philippine exports has grown from 79% to 86%. By
contrast, the direction of trade remains largely
unchanged. Main export markets are the United States,
with about 35% of total merchandise exports in 1997, and
the European Union and Japan with about 16% each. These
three are also the Philippines' main source of imports.

The
report notes that tariffication and reduction in tariff
rates over the past six years have significantly opened
the economy. Applied tariffs were more than halved
between 1992 and 1999 - from 26% to just over 10%. The
report notes however that in some sectors tariffs
escalation persists and tariff dispersion has increased.

The
Philippines has removed most of its non-tariff barriers,
the report also notes. With the notable exception of
rice, which remains traded exclusively by a State agency,
the Philippines has abolished most of its quantitative
restrictions. And since 1994 only five anti-dumping cases
have resulted in the imposition of definitive duties.

However,
the report also states that remnants of the earlier
import-substitution policies persist, pushing up
exporters' costs through competition from protected
import-competing sectors. In part to offset this bias
against exports, the Philippines has introduced measures
in support of export-oriented activities, including
various tax exemptions on imported and locally supplied
inputs.

Although
a number of activities are yet to be fully open to
foreign investment, the report states that more liberal
investment policies and a privatization programme have
widened the choice of sector for domestic and foreign
private investors and thus contributed to export growth.
Foreign investment has also been attracted by sound
macroeconomic policies, a stable business environment,
skilled labour force and a comprehensive system of fiscal
incentives. The report notes, however, that these
incentives have become complex and burdensome to
administer, that they may be fiscally expensive, and may
divert investment from efficient uses.

The
report notes that progress in the privatization of state
corporations has reduced the degree of state intervention
in the economy. In the services sector, for example,
privatization and liberalization have made significant
headway in raising the competitiveness of domestic
producers. However, the Philippine economy is still
characterized by a high degree of market concentration,
with significant state involvement in some sectors, such
as banking and air transport. There is no comprehensive
law, nor central government agency overseeing the
implementation of competition policy, and the report
suggests that a comprehensive competition law would help
ensure that limited market competition does not dampen
the full benefits of investment liberalization and
privatization.

The
Philippines is not a party to the WTO Agreement on
Government Procurement. In its procurement, the
Philippine Government generally favours the purchase of
domestically produced goods and services and applies
certain foreign ownership limitations to suppliers.
Government procurement also favours suppliers from ASEAN
members and the United States.

The
report states that current Philippine policies tend to
favour agriculture and related processing industries over
most other activities. Support for agriculture relies
predominantly on border protection, relying on very high
out-of-quota duties administered through a complex system
to protect sensitive products like rice or corn. The
report also notes that though legal provisions were
introduced in 1997 to enhance food production and lower
prices, the domestic price of some agricultural
commodities exceeds world prices by a wide margin.

In
the manufacturing sector, electronics has become a major
export activity; many electronics manufactures benefit
from duty-free status in the special economic zones,
where investment has been growing, the report states. .
Motor vehicles and parts, in contrast, remains one of the
most protected sectors of the Philippines economy,
maintaining trade-related investment measures. Likewise,
tariff increases in 1999 to protected industries such as
textiles, clothing and steel appear to run counter to
Philippines' drive towards greater neutrality of sector
protection.

Notes
to Editors

The
WTO's Secretariat report, together with a policy
statement prepared by the Philippines, will be discussed
by the WTO Trade Policy Review Body (TPRB) on 27 and 29
September 1999. The WTO's TPRB conducts a collective
evaluation of the full range of trade policies and
practices of each WTO member at regular intervals and
monitors significant trends and developments which may
have an impact on the global trading system. The
Secretariat report covers the development of all aspects
of each of the Philippines' trade policies, including
domestic laws and regulations, the institutional
framework, trade policies by measure and by sector. Since
the WTO came into force, the areas of services and
trade-related aspects of intellectual property rights are
also covered.

To
this press release are attached the summary observations
from the Secretariat report and a summary of the
government report. The full Secretariat and government
reports are available for the press in the newsroom of
the WTO internet site (www.wto.org). The Secretariat
report, together with the government policy statement, a
report of the TPRB's discussion and the Chairman's
summing up, will be published in hardback in due course
and will be available from the Secretariat, Centre
William Rappard, 154 rue de Lausanne, 1211 Geneva 21.

Since
the previous Trade Policy Review of the Philippines in
1993, policy reform has continued to open the economy,
going a long way to correcting the misallocation of
resources associated with earlier trade and industrial
policies. Non-tariff trade barriers have been largely
removed and tariff protection has been sharply reduced,
with MFN duties currently averaging just over 10%
compared with almost 26% in 1992. More liberal investment
policies and the privatization programme have widened the
choice of sectors for domestic and foreign private
investors, and together with sound macroeconomic policies
were instrumental in boosting real GDP growth to an
average annual rate of 5% between 1994 and 1997;
subsequently, those policies have also helped soften the
impact on the Philippine economy of the Asian financial
crisis.

However,
remnants of the earlier import-substitution policies
persist, inducing an anti-export bias that the
Philippines has tried to offset through measures in
support of export-oriented activities. Other areas have
also enjoyed special support, including the automotive
sector, which has longstanding investment measures and
border protection; rice, from quantitative import
restrictions; and, more recently, certain textile,
clothing, steel and other products for which tariffs have
been selectively increased (within WTO bound levels).
Moreover, a number of activities are yet to be fully open
to foreign investment, with no foreign participation
possible in the retail sector. The reform process is thus
not yet complete; its continuation is desirable for the
Philippines to establish a more outward-looking, rather
than export-oriented, environment that could well support
higher, sustainable rates of economic growth.

Trade
and investment reforms have been carried out within the
framework of a stable political and institutional
environment. Disciplined macroeconomic policies have
underlain a fiscal balance and lower inflation; the
current account remained weak over much of the period
since the Philippines' last Review, given a persistent
domestic savings/investment imbalance, and private
external debt grew in consequence. The onset of the Asian
financial crisis led to severe balance-of-payments
difficulties and in July 1997 the Government floated
the Peso, which has since depreciated by some 50% in
nominal terms. The current account turned to a surplus
1998, reflecting a narrowing of the merchandise trade
deficit and a surplus in the services account. The rate
of unemployment, however, was up to just over 10% in
1998, the highest level since the 1991-92 recession.

Merchandise
exports and their contribution to GNP increased
considerably between 1992 and 1997, the export to GNP
ratio rising from just over 18% to 29% during the period.
The shift in exports from primary to manufactured goods
continued, the share of manufactures in Philippine
exports growing from 76.6% in 1992 to 86.0% in 1997;
Philippine exports are now dominated by electronics,
automotive products and garments. By contrast, the
direction of trade has remained largely unchanged: in
1997, main exports markets were the United States, with
about 35% of total merchandise exports, and Japan and the
European Union (EU), with 16-17%. In 1997, Japan and the
United States accounted for some 20% of total Philippine
imports, followed by the EU with just over 19%. In 1997,
the Philippines was the world's 28th importer and 23rd
largest exporter of commercial services.

Export
growth has been closely linked to a rapid increase of
inward foreign direct investment (FDI), notably in
special economic zones. Although limitations to foreign
equity participation remain in various key sectors, these
have been gradually reduced. Foreign investment has also
been attracted by sound macroeconomic policies,
privatization, a stable business environment, and a
skilled labour force. The Government also offers a
comprehensive package of tax and non-tax investment
incentives which, however, has become complex and
burdensome to administer as a result of the proliferation
of eligibility criteria, conditions and requirements. The
system may divert investment from efficient uses, attract
rent-seeking companies that are already world-competitive
or, on the contrary, attract inefficient producers that
need extra financial assistance. Moreover, the implicit
fiscal cost of such system is probably high.

Progress
in the privatization of state corporations has reduced
the degree of state intervention in the economy, but the
Philippine economy is still characterized by a high
degree of market concentration. There is no comprehensive
competition law, nor central government agency overseeing
the implementation of competition policy. A comprehensive
competition law might thus help ensure that limited
market competition does not dampen the full benefits of
investment liberalization and privatization.

The
overall degree of protection granted to the economy has
continued to decline since the Philippines' last Review.
In consequence of the commitments in the
Uruguay Round, the Philippines bound virtually all
agricultural (except for rice) and about half of
manufacturing tariff lines, compared with only about 7%
of all tariff lines before the Round. However, final
bound tariffs are well in excess of the current average
applied tariff. Based largely on pre-announced
programmes, applied tariffs were more than halved between
1992 and 1999, despite tariff increases within bound
levels for some products in January 1999. In some sectors
tariff escalation persists and tariff dispersion has
increased.

Reform
of Philippine customs procedures, as well as some
streamlining of preshipment inspection, has taken place
since the last Review. The Philippines has applied the
provisions allowing developing countries to delay
application of the WTO Customs Valuation Agreement.
Customs valuation switched from the "home
consumption value" method to the "export
value" method in 1996, and a shift to the
"transaction value" method by 2000 is
envisaged. Minimum import prices remain in use.

Most
quantitative restrictions have been abolished, with the
notable exception of rice, which remains state-traded by
the National Food Authority; other quantitative
restrictions, including import prohibitions and import
licensing, are maintained for health, security and
similar objectives. The Philippines has apparently phased
out import restraints previously maintained for
balance-of-payments reasons, having undertaken to
disinvoke GATT Article XVIII:B (on trade measures for
balance-of-payment reasons) by end 1997.

The
Philippines has used trade defence measures sparingly,
five anti-dumping cases having resulted in the imposition
of definitive duties since 1994. Proposed anti-dumping
and countervailing legislation would align Philippine
regulations with the respective multilateral rules. There
is no specific safeguard legislation but work is in
progress to introduce it.

Almost
half the standards in the Philippines are aligned to
international standards, a significant increase since
1993; the authorities intend to increase this share to
50% by 2005, and to 100% by 2020. There are 69
(mandatory) technical regulations covering products such
as electrical goods, construction materials and chemical
products. National product certification marks are
voluntary except for products covered under technical
regulations.

In
part to offset the anti-export bias resulting from trade
measures affecting imports, Philippines has a number of
measures to support exports. These include various tax
exemptions on imported and locally supplied inputs
provided through bonded warehouses, and duty exemptions.
Additional tax incentives for export activities were
provided by the Export Development Act of 1994. Sugar,
and textiles and clothing exports remain subject to
special arrangements in foreign markets.

The
Philippines is not a party to the WTO Agreement on
Government Procurement. In its procurement, the
Philippine Government generally favours the purchase of
domestically produced goods and services, and applies
certain foreign ownership limitations to suppliers. The
Philippines is a signatory to the ASEAN Preferential
Trading Arrangements under which it grants a preferential
margin in government procurement to ASEAN suppliers;
certain goods produced in the United States also seem to
be favoured. Counter-purchase or offset in certain
government procurement projects is encouraged by law.

The
Philippines maintains various schemes of intervention in
the automotive industry, and soap and detergent
production; they have been notified under the provisions
of the WTO Agreement on Trade-Related Investment Measures
(TRIMs). The Philippines adopted, in 1998, a new law on
intellectual property, to reflect the requirements in the
WTO Agreement on Trade-Related Aspects of Intellectual
Property Rights (TRIPS); further legislative changes are
envisaged to provide protection to layout designs of
integrated circuits, and plant varieties.

The
Philippines continued liberalization of its trade
and investment regimes has resulted in, and required the
adoption of policies to establish a more neutral
incentive structure. Tariffication and reductions in
tariff rates over the past six years have gone a long way
towards offsetting the traditional anti-export bias in
the Philippine import regime, which pushed up exporters'
costs through competition from the protected
import-competing sectors. The authorities have also
sought to remove infrastructural constraints by
liberalizing regulated industries, particularly those
providing basic business inputs (e.g. electricity and
telecommunications services).

Nevertheless,
remnants of earlier import substitution and "picking
winners" strategies remain, combined with a complex
system of concessions to help export-oriented industries,
many located in special economic zones, to take advantage
of imported inputs. The dynamism of special economic
zones demonstrates the advantages of a liberal trade
regime, and suggest that the Philippines could derive
further benefits, including for its consumers, from a
more outward-oriented, as opposed to export-oriented
regime focusing on neutrality of treatment between
domestic and export-oriented production.

The
effect of current sectoral policies is to favour
agriculture and related processing industries over most
other activities, a significant reversal of the situation
at the time of the previous Review in 1993. In view of
existing budget constraints, support for agriculture
relies predominantly on border protection. Complying with
WTO commitments to tariffy quantitative import
restrictions, tariff quotas were implemented in 1995 for
15 groups of agricultural products, including coffee,
corn, meat, potatoes, and sugar. Very high out-of-quota
duties, administered through a complex system, protect
sensitive products, such as rice and corn; for some
products, the out-of-quota tariff rate is the only
applicable duty. The Philippines also undertook minimum
access commitment on rice. Though legal provisions were
introduced in 1997 to enhance food production and lower
prices, the domestic price of some agricultural
commodities exceeds world prices by a wide margin.

The
downstream oil industry has been largely liberalized, but
a requirement for a state corporation to use a minimum of
domestic coal is in place to support the local coal
industry. The priority given by the Government to
eliminate the power shortages that plagued the economy at
the time of the previous Review has born fruit, relying
mostly on the privatization and facilitation of private
participation in power generation; however, the high cost
of electricity is an issue.

The
Philippines' manufacturing sector is becoming
increasingly diversified and its exports are now crucial
to economic performance. Such exports have been led by
electronics, which have grown annually by about 44% over
the period since the previous Review. Exports subject to
bilateral agreements under the WTO Agreement on Textiles
and Clothing accounted for about four fifths of total
Philippine garment exports in 1996.

The
motor vehicle industry has grown strongly since the last
Review, becoming also a major export activity but
competing from behind a heavily protected domestic
market. Parts and components as well as used motor
vehicles are subject to import licencing, while
participants in the Car Development Program must comply
with local-content requirements and foreign-exchange
requirements. These measures have supported domestic
producers at the cost of significant distortions in the
domestic market, such as higher prices for consumers and
minimal scale efficiencies due to low production volumes,
and a probable net resource misallocation in the
Philippine economy.

Tariff
increases in 1999 to protect industries such as textiles,
clothing and steel also appear to run counter to
Philippines' drive towards greater neutrality of sectoral
protection. In view of the sharp currency depreciation
since 1997, the rationale for intervention in and
preferred treatment for those industries would appear
weak.

In
the services sector, significant headway has been made in
reforming and raising the competitiveness of domestic
producers through liberalization and privatization,
including in financial services and telecommunications.
State involvement in some sectors, such as banking and
air transport, is still significant but decreasing.
Foreign investment remains restricted in significant
areas of the transport, telecommunications, banking, and
business services industries, notwithstanding recent
initiatives to liberalize foreign equity participation
notably in financial services.

A
commitment to WTO principles has been integral to
Philippine economic policies since the Philippines
ratified of the WTO Agreement in 1994. Philippine
undertakings under the WTO Agreements included a
significant increase in tariff bindings, extensive tariff
reductions, elimination of quantitative and other
non-tariff measures, and commitments in many services
sectors. Under the General Agreement on Trade In Services
(GATS), the Philippines made commitments in financial,
communication, transport, and tourism and travel-related
services; it also participated in the Financial Services
Negotiations and the Negotiations on Basic
Telecommunication Services concluded in 1997. The
Philippines had yet to sign the Fifth Protocol of the
GATS as of June 1999. In some cases, existing legislation
offers more liberal treatment to foreign providers than
the Philippines' bindings under the GATS.

Concurrently,
the Philippines has also pursued preferential trading
agreements as a means of increasing trade flows. Within
ASEAN, the Philippines is party to the Common Effective
Preferential Tariff (CEPT) scheme, signed in 1992, aiming
to achieve an ASEAN Free Trade Area (AFTA). Although, as
in the case of other preferential arrangements, the CEPT
could lead to trade diversion, this effect is currently
reduced by the relatively modest value of Philippine
trade with other ASEAN members; in the longer term, the
effect would be minimized by the falling external
barriers in the Philippines and other ASEAN countries.

The
reforms pursued by the Philippines over an extended
period provide a generally positive example of
liberalization and of their advantages in overcoming
macroeconomic shocks. There can be little doubt that the
Philippines has also benefited since 1993 from market
opening and improved rules achieved under the Uruguay
Round and subsequent multilateral negotiations. These
results have helped in maintaining and deepening the
Philippines' autonomous liberalization measures, and
consolidating their economic benefits. The Philippine
economy stands to gain from further non-discriminatory
liberalization and strengthening of multilateral rules,
combined with continued domestic reforms towards a more
outward-looking economy.

1.
At about the time of the 1993 Trade Policy Review (TPR),
the Philippine economy was recovering from a string of
major natural calamities including a devastating
earthquake and the catastrophic eruption of Mount
Pinatubo. The economy was in stagnation caused
largely by unsustainable deficits in the government
budget and the current account of the balance of payments
(BOP). Huge financial requirements of post-disaster
rehabilitation work exacerbated the situation.

2.
Nonetheless, the adoption of important financial and
monetary measures helped promote greater economic
stability, while the progress achieved in addressing
structural bottlenecks and in encouraging a more open
economy improved the prospects for more rapid growth
being sustained in the long-run. Inflation has since been
contained at single digit and domestic interest rates
softened. Real Gross National Product (GNP), which grew
at 2.1% in 1993 was bolstered largely by higher real
investments and strong foreign demand. A more liberal
foreign exchange regime, combined with market-based
foreign exchange policy, improved the capability of the
economy to respond more quickly to foreign demand and
pulled in foreign capital. In the light of this
deregulated atmosphere, the level of international
reserves were kept at a comfortable level during that
year and the peso exhibited improved international
competitiveness.

3.
Gathering strength, GNP growth steadily increased to 5.3%
by 1997 during which the incipient financial crisis
affecting Asia, and subsequently the world, was creeping
into the Philippine economy as well. In 1998, the economy
slowed down to a negligible 0.1% GNP growth with gross
domestic product (GDP) also posting a slight decline of
0.5%.

Table
1

Selected
Macroeconomic Indicators

1993

1994

1995

1996

1997

1998

Real
GNP (growth rate in %)

2.1

5.3

5.0

7.2

5.3

0.1

Real
GDP (growth rate in %)

2.1

4.4

4.8

5.8

5.2

-0.5

Source:
National Statistics Coordination Board; National Economic
Development Authority.

4.
For the period 1993 to 1998, growth in the Philippine
economy was largely attributed to the services sector
which accounted for a 43% share of GDP in 1993 in
value-added terms, and 45.1% in 1998. The services sector
was the slowest in 1993 with a growth rate of 2.5% and
the fastest in 1996 by 6.4%. In 1998, the services sector
grew by 3.5%.

5.
Industry accounted for the next largest share of GDP with
34.2% in 1993 and 35.5% in 1998. In terms of growth, the
industrial sector peaked in 1995-1996 and markedly
decelerated by 1998.

6.
The share of the agricultural sector has declined from
22.8% in 1993 to 19.4 in 1998, despite the fact that more
than 40% of the Philippine labour force is in the sector,
owing to its relatively poorer performance. In 1998, due
to a combination of factors including adverse climatic
conditions (El Ni˝o), the agricultural sector
contracted by 6.6%.

Table
2

Sectoral
Growth Rates and Share of GDP

(Percent)

1993

1994

1995

1996

1997

1998

Agriculture

Growth
rate

2.1

2.6

0.9

3.8

2.9

-6.6

Share

22.8

22.4

21.5

21.0

20.7

19.4

Industry

Growth
rate

1.6

5.8

7.0

6.2

6.1

-1.7

Share

34.2

34.7

35.4

35.6

35.9

35.5

Services

Growth
rate

2.54

4.2

5.0

6.4

5.5

3.5

Share

3.0

42.9

43.0

43.3

43.4

45.1

Source:
National Statistics Coordination Board; National Economic
Development Authority.

7.
For the period 1993 to 1998, the countrys
liberalization programme, and active involvement in
international and regional trading arrangements,
underpinned the growth in the export sector. During this
period exports of goods and services grew by an average
of 14.2%. Although exports of goods registered a negative
rate in 1998 at 0.3%, in real terms (using 1985 as base
prices), merchandise exports continued to grow at 16.9%
for that year in current dollar terms. Exports are
dominated by semiconductors and other products of the
electronic industry, which in 1998 accounted for around
67% of total exports.

8.
On the other hand, import growth was lower at around 10%
average from 1993 to 1998, with 1998 registering an
all-time decline of 14.3% owing to the financial crisis,
and the resulting depreciation of the Philippine peso by
around 39%. The bulk of imports is comprised of fuel, raw
materials, intermediate goods and capital equipment.

Table
3

Trade
Performance

(Growth
rate in percent)

1993

1994

1995

1996

1997

1998

Total
exports of goods and services

6.2

19.8

12.0

15.4

17.5

14.3

Merchandise
exports

7.9

15.2

16.2

9.3

13.5

-0.3

(Merchandise
exports in current terms)

15.8

18.5

29.4

17.7

22.8

16.9

Total
imports of goods and services

11.5

14.5

16.0

16.7

14.4

-14.3

Merchandise
imports

10.8

14.9

15.9

16.6

7.8

-15.3

(Merchandise
imports in current terms)

21.2

21.2

23.7

20.8

14.0

18.8

Source:
National Statistics Coordination Board; National Economic
Development Authority.

9.
Since the last Trade Policy Review in 1993, the
Philippine Government has pursued trade and related
economic reforms. The present report highlights four
specific policy areas that have pronounced effects on the
countrys international trade practices.

10.
In December 1994, the Philippine Senate ratified the
"Marrakesh Agreement Establishing the World Trade
Organization". Thus, the Philippines became a
founding Member of the WTO as the Agreement entered into
force on 1 January 1995. The event signaled a conscious
policy decision on the part of the Philippine Government
to pursue further trade liberalization and embodied a
firm policy objective of becoming more closely integrated
with the multilateral trading system (MTS).

11.
Philippine priorities in the WTO are as follows:

(a)
Market Access - the full and faithful
implementation of commitments in areas such as industrial
tariffs, agriculture, textiles and clothing, and
services;

(b)
Rules and Disciplines - the proper use
of WTO rules and disciplines including measures against
unfair trade such as anti-dumping and countervailing
duties, safeguard measures under fair trade conditions,
customs valuation, subsidies, intellectual property
rights; and

(c)
Institutional Topics - faithful and
timely enforcement of the decisions and recommendations
under the dispute settlement mechanism and improving and
strengthening the multilateral trading system through the
Trade Policy Review mechanism.

12.
The Philippines is a founding and active member of the
ASEAN and plays an important role in the realization of
the ASEAN Free Trade Area (AFTA). Launched in 1993, the
timetable for AFTA was originally set for 15 years ending
in the year 2008. In 1994, an agreement was reached to
shorten the time frame for implementation within 10 years
or until the year 2003. Very recently in 1998, ASEAN
announced bold measures to even shorten the duration of
AFTA by completing the process in the year 2002.

13.
On a much wider regional front, the Philippines also
actively participates in the Asia-Pacific Economic
Cooperation (APEC) forum, supporting the objective of
building on the open multilateral trading system espoused
under the WTO. APEC members agreed after the conclusion
of the Uruguay Round (UR) in 1994 to carry out all
commitments fully and without delay. In various events
since then, APEC has affirmed its goal for the full and
effective implementation of the UR outcomes within the
agreed time frames in a manner fully consistent with the
letter and spirit of the WTO.

14.
The year 1993 marked the midpoint of the implementation
of Executive Order No. 470, or the Tariff Reform
Programme (TRP), for 1991-1995 undertaken by the
Philippine Government as part of its overall economic
reform package. Nearly 90% of the total number of tariff
lines were dutiable at either duty free, 10%, 20%, 30%,
40% or 50% in the 1993 TRP Schedule. Those dutiable at
10% represented almost 35% of all tariff lines. The
minimum tariff rate was 0% with the highest at 80%, and
the overall average nominal tariff was 23.50%.

15.
By 1995, the Philippine Government issued Executive Order
(E.O.) No. 264 ushering in the third TRP. The E.O.
envisioned ending tariff rates of 3% and 10% by 1 January
2003, adjusting to a uniform 5% tariff rate starting 1
January 2004. By the end of 1995, the minimum tariff was
at 3% imposed on 35% of all tariff lines. Another 62% of
tariff lines had duties of either 10%, 20% or 30%. Tariff
lines with duties above 30% (ie., 35%, 40%, 45% and 50%)
comprised less than 3% of the total number of tariff
lines. Since then, the Philippines has continued to
aggressively pursue the TRP issuing more comprehensive
tariff adjustments under E.O. 465 which took effect in
January 1998, and E.O. 486 (effective July 1998).

16.
In 1999, E.O. 63 was implemented mainly in response to
the current economic crisis, with the upward tariff
adjustments primarily intended to alleviate the
difficulties faced by domestic industries, arising from
the financial crisis, and to provide temporary import
relief to industries adversely affected by the crisis,
and address the surge in low-priced imports from sources
which experienced significant currency depreciation. It
covers a total number of 720 tariff lines consisting of
textile and garment products, petrochemicals, and iron
and steel products. The applied tariffs on 694 tariff
lines, for chemicals, textiles, metals and machinery,
were raised to levels at or below those bound in the WTO.
It should be noted, however, that the upward tariff
adjustments are temporary and limited to the remainder of
1999, after which they will revert to their former rates.
Furthermore, E.O. 63 reduced the tariffs on three tariff
lines while maintaining present rates on 14 tariff lines
which were scheduled for reductions.

17.
The average nominal tariff is currently estimated at
approximately 10% for 1999 and at 8% in the year 2000.
More than half of the total number of tariff lines, which
presently number 5,638, is dutiable at 3% in 1999.
Another 31% of tariff lines have tariffs of either 10% or
20%. The minimum tariff is 0% and the maximum at 65%.

18.
The Philippine Government plans to continue with its TRP
until a uniform tariff rate of 5% on all products (except
sensitive agricultural products), or at least a narrow
range of 0% - 5%, is achieved in 2004.

19.
In 1993 the new Bangko Sentral ng Pilipinas (BSP) was
established with the primary objective of maintaining
price stability conducive to a balanced and sustainable
growth of the economy. The fiscal and administrative
autonomy of the BSP provided the monetary authorities
adequate flexibility to pursue its objective of price
stability. Likewise, the BSP was established with the
objective of maintaining a central monetary authority
which functions and operates as an independent and
accountable corporate body with mandated responsibilities
concerning money, banking and credit.

20.
The bold reforms to deregulate the countrys foreign
exchange (forex), trade, and payment systems were started
by the former Central Bank of the Philippines (CBP) in
1992. Among the reforms pursued by the CBP and its
successor, BSP, was the lifting of forex restrictions on
current transactions. Under the liberalized current
account environment, the mandatory surrender requirement
on all forex receipts and on inward remittance of all
forex receipts from exporters were removed. On the other
hand, limits on the allowable amount of forex purchases
by residents, to facilitate payments for services, were
liberalized substantially. The liberalization process of
the forex regime was continued by the BSP. At the same
time, the BSP liberalized selected transactions in the
capital account of the balance of payments. In
particular, the rules applied to local banks on forex
lending were relaxed to facilitate exporters access
to foreign currency loans. A liberalized market on the
entry and operation of foreign banks was put in place
following the passage of RA 7721 on
15 May 1994.

21.
At the outbreak of the currency crisis in July 1997, the
monetary authorities decided to allow the peso to float
freely as the effectiveness of the intensified dollar
sales diminished.